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Pater Tenebrarum

Pater Tenebrarum

Pater Tenebrarum is an independent analyst and economist/social theorist. He has been involved with financial markets in various capacities for 39 years and currently writes economic and market analyses for independent research organizations and a European hedge fund consultancy as well as being the main author of the acting-man blog.

Articles by Pater Tenebrarum

French Election – Bad Dream Intrusion

6 days ago

The “Nightmare Option”
The French presidential election was temporarily relegated to the back-pages following the US strike on Syria, but a few days ago, the Economist Magazine returned to the topic, noting that a potential “nightmare option” has suddenly come into view. In recent months certainty had increased that once the election moved into its second round, it would be plain sailing for whichever establishment candidate Ms. Le Pen was going to face. That certainty has been shaken quite a bit lately.

The four front-runners in the first round election, from left to right: François Fillon, Emmanuel Macron, Jean-Luc Mélenchon, Marine Le Pen. That’s right, Mr. Mélenchon, a.k.a. the “French Hugo Chavez” has

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Gold – An Overview of Macroeconomic Price Drivers

12 days ago

Fundamental Analysis of Gold
As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold’s extremely high stock-to-flow ratio and the main source of gold demand  – which is monetary, or investment demand – suggest that gold has to be analyzed as though it were a currency rather than a commodity.
One implication of this is that reservation demand is an extremely important factor

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Strange Moves in Gold, Federal Reserve Policy and Fundamentals

18 days ago

Counterintuitive Moves
Something odd happened late in the day in Wednesday’s trading session, which prompted a number of people to mail in comments or ask a question or two. Since we have discussed this issue previously, we decided this was a good opportunity to briefly elaborate on the topic again in these pages.
A strong ADP jobs report for March was released on Wednesday, and the gold price dutifully declined ahead of it already, while the stock market surged concurrently. Later in the day, the Fed minutes were published, and their tone was definitely seen as very “hawkish”, at least by today’s standards.

Strange happenings alert!
There was quite a bit of talk about rate hikes and  – gasp! – even about ending

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LIBOR Pains

24 days ago

Wrong Focus
If one searches for news on LIBOR (=London Interbank Offered Rate, i.e., the rate at which banks lend dollars to each other in the euro-dollar market), they are currently dominated by Deutsche Bank getting slapped with a total fine of $775 million for the part it played in manipulating the benchmark rate in collusion with other banks (fine for one count of wire fraud: US$150 m.; additional shakedown by US Justice Department: US$625 m., the price tag for a deferred prosecution agreement).

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Bad, but not deadly for the wobbling banking giant. There is a far more important fact to focus on though – namely what LIBOR has actually done lately. Let us take a look:

London Interbank Offered Rate – 3 Months,

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Price Inflation – The Ultimate Contrarian Bet

27 days ago

Unanimity Syndrome
If there is one thing apparently no-one believes to be possible, it is a resurgence of consumer price inflation. Actually, we are not expecting it to happen either. If one compares various “inflation” data published by the government, it seems clear that the recent surge in headline inflation was largely an effect of the rally in oil prices from their early 2016 low. Since the rally in oil prices has stalled and may well be about to reverse, there seems to be no obvious reason to expect the increase in CPI to continue, or heaven forbid, to accelerate.

Buying an egg in Berlin, circa early 1923.

Photo credit: DPA – Click to enlarge
So-called “inflation expectations” – which really means

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Gold Sector: Positioning and Sentiment

March 17, 2017

A Case of Botched Timing, But…
When last we wrote about the gold sector in mid February, we discussed historical patterns in the HUI following breaches of its 200-day moving average from below. Given that we expected such a breach to occur relatively soon, the post turned out to be rather ill-timed. Luckily we always advise readers that we are not exactly Nostradamus (occasionally our timing is a bit better). Below is a chart of the HUI Index depicting the action since the January 2016 bear market low, with lateral support/resistance lines relevant to the recent action.
To the above, readers should keep in mind that we are slightly biased, due to our positive long term view on gold (which is based on good reasons as

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Speculative Blow-Offs in Stock Markets – Part 2

March 7, 2017

Blow-Off Pattern Recognition
As noted in Part 1, historically, blow-patterns in stock markets share many characteristics.  One of them is a shifting monetary backdrop, which becomes more hostile just as prices begin to rise at an accelerated pace, the other is the psychological backdrop to the move, which entails growing pressure on the remaining skeptics and helps investors to rationalize their exposure to overvalued markets. In addition to this, the chart patterns of  stock indexes before and after blow-off moves are displaying noteworthy similarities as well.

“On Margin” – a late 1929 cartoon illustrating the widespread obsession with the stock market at the time. There was just a 10% margin requirement, i.e.,

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Speculative Blow-Offs in Stock Markets – Part 1

March 6, 2017

Defying Expectations
Why is the stock market seemingly so utterly oblivious to the potential dangers and in some respects quite obvious fundamental problems the global economy faces? Why in particular does this happen at a time when valuations are already extremely stretched? Questions along these lines are raised increasingly often by our correspondents lately. One could be smug about it and say “it’s all technical”, but there is more to it than that. It may not be rocket science, but there are a few issues that are probably not getting the attention they deserve.

The stock market has blown widespread expectations out of the water by embarking on a seemingly unstoppable rally since Donald Trump was elected

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Gold Sector Update – What Stance is Appropriate?

February 26, 2017

The Technical Picture – a Comparison of Antecedents
We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of late. In light of past experience, such market behavior certainly deserves to be scrutinized. We felt reminded of another occasion though, when a negative divergence prompted a flood of mails to us as well (not every divergence does).
As

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Incrementum Advisory Board Meeting, Q1 2017 and Some Additional Reflections

February 9, 2017

Looming Currency and Liquidity Problems
The quarterly meeting of the Incrementum Advisory Board was held on January 11, approximately one month ago. A download link to a PDF document containing the full transcript including charts an be found at the end of this post. As always, a broad range of topics was discussed; although some time has passed since the meeting, all these issues remain relevant. Our comments below are taking developments that have taken place since then into account.
It has become a tradition to invite a special guest to the board meeting and we were honored to be joined by Paul Mylchreest this time. Most of our readers will probably know Paul as the author of the Thunder Road Report. He currently

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US Financial Markets – Alarm Bells are Ringing

January 18, 2017

A Shift in Expectations
When discussing the outlook for so-called “risk assets”, i.e., mainly stocks and corporate bonds (particularly low-grade bonds) and their counterparts on the “safe haven” end of the spectrum (such as gold and government bonds with strong ratings), one has to consider different time frames and the indicators applicable to these time frames. Since Donald Trump’s election victory, there have been sizable moves in stocks, gold and treasury bonds, as the election result has strongly boosted certain market expectations.

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The chart below compares three of the associated ETFs, namely SPY, TLT and GLD:
As we have mentioned late last year, US true money supply growth rates have accelerated sharply

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Gold – Ready to Spring Another Surprise

December 29, 2016

Sentiment Extremes
Below is an update of a number of interesting data points related to the gold market. Whether “interesting” will become “meaningful” remains to be seen, as most of gold’s fundamental drivers aren’t yet bullishly aligned. One must keep in mind though that gold is very sensitive with respect to anticipating future developments in market liquidity and the reaction these will elicit from central banks. Often this involves very long lead times.

Blackbeard’s treasure chest. – Click to enlarge
If one looks at long term charts of gold, one can see that meaningful rallies usually start as technical short covering moves, which often are still at odds with at least some of the macroeconomic fundamentals.

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The Exiling of Risk

December 17, 2016

A Quick Chart Overview
Below is an overview of charts we picked to illustrate the current market situation. The selection is a bit random, but not entirely so. The first set of charts concerns positioning and sentiment. As one would expect, these look fairly stretched at the moment, but there are always ways in which they could become even more stretched. First a look at the NAAIM exposure index:

NAAIM Exposure Index, SPXAt 101.6% net long (responses can range from 200% leveraged short to 200% leveraged long), fund managers taking part in this survey have reached a fairly one-sided extreme. – Click to enlarge
What is even more remarkable than the overall positioning extreme is the fact that there were literally

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The Climate Changes Back – What Comes Next?

December 13, 2016

Surface Temperatures Plunge – the Great Pause Continues
Last year’s El Nino phenomenon temporarily provided succor to climate alarmists, who were increasingly bothered by the “Great Pause” – the fact that the tiny amount of warming experienced since the last cooling cycle ended in the late 1970s had apparently stopped. Despite trace amounts of CO2 in the atmosphere continuing to climb, mother nature decided to disobey alarmist models and temperatures went sideways for about 20 years (or even longer, depending on the data set).
A raft of excuses was offered for this decidedly non-hockey stick behavior – by November 2014, there were 66 different “explanations” to choose from. So this is what “settled science” looks

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The Climate Changes Back – What Comes Next?

December 13, 2016

Surface Temperatures Plunge – the Great Pause Continues
Last year’s El Nino phenomenon temporarily provided succor to climate alarmists, who were increasingly bothered by the “Great Pause” – the fact that the tiny amount of warming experienced since the last cooling cycle ended in the late 1970s had apparently stopped. Despite trace amounts of CO2 in the atmosphere continuing to climb, mother nature decided to disobey alarmist models and temperatures went sideways for about 20 years (or even longer, depending on the data set).
A raft of excuses was offered for this decidedly non-hockey stick behavior – by November 2014, there were 66 different “explanations” to choose from. So this is what “settled science” looks

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The Climate Changes Back – What Comes Next?

December 13, 2016

Surface Temperatures Plunge – the Great Pause Continues
Last year’s El Nino phenomenon temporarily provided succor to climate alarmists, who were increasingly bothered by the “Great Pause” – the fact that the tiny amount of warming experienced since the last cooling cycle ended in the late 1970s had apparently stopped. Despite trace amounts of CO2 in the atmosphere continuing to climb, mother nature decided to disobey alarmist models and temperatures went sideways for about 20 years (or even longer, depending on the data set).
A raft of excuses was offered for this decidedly non-hockey stick behavior – by November 2014, there were 66 different “explanations” to choose from. So this is what “settled science” looks

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US True Money Supply Growth Jumps, Part 1: A Shift in Liabilities

December 6, 2016

A Very Odd Growth Spurt in the True Money Supply
The growth rates of various “Austrian” measures of the US money supply (such as TMS-2 and money AMS) have accelerated significantly in recent months.  That is quite surprising, as the Fed hasn’t been engaged in QE for quite some time and year-on-year growth in commercial bank credit has actually slowed down rather than accelerating of late. The only exception to this is mortgage lending growth – at least until recently. Growth in mortgage loans is still very slow though, especially compared to historical growth rates. It cannot really account for the recent surge in money supply growth either.
Usually lending by commercial banks will tend to lead growth in the broad

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A Note on Gold and India – What is Driving the Gold Price?

November 29, 2016

Hidden Motives
It is well-known that India’s government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption.
In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption  immediately opened up upon enactment of the ban (see “Gold Price Skyrockets in India After Currency Ban” – Part 1, Part 2 and Part 3).
It is a nigh apodictic certainty that governments are lying – whether outright or by omission – when they impose such drastic measures. It should be clear how the State operates once one recognizes its true nature and realizes that “we” are definitely not

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The Problem with Corporate Debt

November 26, 2016

Taking Off Like a Rocket
There are actually two problems with corporate debt. One is that there is too much of it… the other is that a lot of it appears to be going sour.
As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us:
“Businesses racked up debt in the January-to-March period at the fastest pace in three quarters, according to data released Thursday.
Business debt grew at a blistering 7.9% annual rate in the first quarter, the Federal Reserve said. Business debt has expanded by around 8% in three of the last five quarters. Companies still have substantial cash on the sidelines, as their stockpiles edged down to $1.89 trillion from $1.9 trillion.”

Harvey had a good

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Gold – Eerie Pattern Repetition Revisited

November 16, 2016

Gold Continues to Mimic the 1970s
Ask and ye shall receive… we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise.

A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this bull/bear thing going at the time…

Photo via ancientmoney.org – Click to enlarge
It is actually interesting to revisit both past articles speculating about a potential gold bottom that turned out to be correct (those would be the many articles we

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Inflation Expectations Rise Sharply

November 16, 2016

Mini-Panic Over Inflation After Trump’s Election Victory
We have witnessed truly astonishing short term market conniptions following the Donald Trump’s election victory. In this post we want to focus on one aspect that seems to be exercising people quite a bit at present, namely the recent surge in  inflation expectations reflected in the markets. Will we have to get those WIN buttons out again?
A 1970s “whip inflation now” button. The only thing that was actually needed to “whip inflation” was for the Federal Reserve to stop printing money in ever greater quantities (or to stop supporting rapid money creation by the commercial banking system). It started doing so about 2 years before Mr. Paul Volcker took the

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Trumped

November 14, 2016

US Citizens Giving the Finger to Globalist Statist Elites – Big Time
Back in late August we posted something about Mr. Trump’s chances probably being a lot better than was generally assumed (see: US Presidential Election – How Reliable are the Polls?). You know what the say about a headline that ends in a question mark; most often, the answer to the question is “No”. And so it was in this case – the polls were not reliable.
We should point out that Bill Mitchell, the man who showed why the polls were so extremely flawed, is really deserving of a lot of praise in this context. Yes, he may have been a bit biased himself, but he was working all of this out all on his own, and his interpretations of the polls and the

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Dissection of the Long-Term Asset Bubble

November 12, 2016

The Long Term Outlook for the Asset Bubble
Due to strong internals, John Hussman has given the stock market rally since the February low the benefit of the doubt for a while. Lately he has returned to issuing warnings about the market’s potential to deliver a big negative surprise once it runs out of greater fools. In his weekly market missive published on Monday (entitled “Sizing Up the Bubble” – we highly recommend reading it), he presents inter alia the following eye-popping chart:
In terms of the median price-sales ratio the stock market isn’t just overvalued; its valuation is by now beyond good and evil, exceeding every previous bubble peak.  Other measures of valuation are not at similar extremes, but as

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Stock Market Volatility, Gold and the Election

November 8, 2016

Pre-Election Market Movers – Mr. Comey and the Trio Infernal
Before this Monday, the S&P 500 Index went down nine days in a row. While this was almost unprecedented (or in any case, a very rare event) the decline was quite small overall. The timing of the pullback and the subsequent strong rebound on Monday suggests that Mr. Comey’s letters to Congress regarding the FBI investigation into official emails by Hillary Clinton – which have found their way unto a computer owned by Anthony Weiner (the former husband of Clinton’s right-hand woman Huma Abedin) –  were the “trigger” for these moves.
 
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FBI chief Comey and the Trio Infernal: Huma Abedin, Anthony Weiner and Hillary Clinton. Weiner is embroiled in a rather

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Incrementum Advisory Board Meeting Q3 2016

November 6, 2016

Is Stagflation a Potential Threat?
The Incrementum Fund held its quarterly advisory board meeting on October 3 (the transcript can be downloaded below). Our regular participants – the two fund managers Ronald Stoeferle and Mark Valek, advisory board members Jim Rickards, Frank Shostak and yours truly –  were joined by special guest Grant Williams this time. Many of our readers probably know Grant; he is the author of the bi-monthly newsletter “Things That Make You Go Hmmm…”, as well as one of the founders of Real Vision TV.
Characteristics of stagflation: economic growth goes into reverse, but price inflation rises  anyway. This scenario was completely unexpected by the Keynesian consensus when it hit the economy

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D-day for Australia’s Real Estate Bubble?

November 4, 2016

Unknowable Degrees of Bubble Insanity
Back in February, we brought you an update on the truly insane real estate bubble in Australia (see: “Australia’s Housing Bubble – In the Grip of Insanity” for details) in the wake of Jonathan Tepper of Variant Perception reporting on an eye-opening fact-finding tour in Sydney.

This rotting shack in Sydney and its tiny plot of land sold for nearly $1 million in May of 2014 – more than two years ago. Since then, house prices in Australia have increased even further. Yes, it is an insane bubble, no doubt about it.

Photo credit: Attila Szilvasi – Click to enlarge
As every seasoned market observer knows though, the fact that a bubble has  obviously attained crazy proportions

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Recessions, Predictions and the Stock Market

November 2, 2016

Only Sell Stocks in Recessions?
We were recently made aware of an interview at Bloomberg, in which Tony Dwyer of Cannacord and Brian Wieser of Pivotal Research were quizzed on the recently announced utterly bizarre AT&T – Time Warner merger. We were actually quite surprised that AT&T wanted to buy the giant media turkey. Prior to the offer, TWX still traded 50% below the high it had reached 17 years ago.
The merger as such is actually not what we want to discuss though. Rather, it is a remark of Mr. Dwyer’s regarding the stock market in general and what the recent merger mania is signaling. He makes two major points in the course of the conversation. For one thing, he notes that the merger (along with many other

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50 Slides for Gold Bulls – The New Incrementum Chart Book

October 25, 2016

A Companion Update to this Year’s “In Gold We Trust” Report
Our good friends Ronnie Stoeferle and Mark Valek of Incrementum AG have just published a new chart book, which recaps and updates charts originally shown in this year’s 10th anniversary edition of the “In Gold We Trust” report and provides an overview of recent developments relevant to the gold market. The chart book can be downloaded in PDF form via the link at the end of this post.

Queen Elizabeth skeptically eyes what little is left of England’s once sizable gold hoard. – Click to enlarge
Her mien seems to indicate regret. Well-known socialist financial guru Gordon Brown ordered the sale of half of the UK’s gold in 1999, at prices that had just

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A Looming Banking Crisis – Is a Perfect Storm About to Hit?

October 20, 2016

Andy Duncan Interviews Claudio Grass Andy Duncan of FinLingo.com has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove. Andy Duncan of FinLingo.com (left) and Claudio Grass of Global Gold (right) – Click to enlarge Andy Duncan: How do you see the current situation in banking particularly in Europe? Claudio Grass: One interesting indicator is that today in certain countries not bankers are making the highest average salaries any longer , they have been replaced with government servants. Overall I would say it is bad, but that was predictable. The system and the

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US Stock Market – a Spanking May be on its Way

October 18, 2016

Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though. Time for some old-fashioned disciplining… (a. D. 1891) Photo credit: Littleton View Co. – Click to enlarge Now that we have said this, we have probably jinxed it for the bears, as the market may resolve to go straight up. Still, we had so say something, simply because we don’t like the look of the charts below. They look iffy, and it probably won’t

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